E-commerce pumps up Q1 earnings for UPS

E-commerce, particularly in the United States, played a direct role in boosting first quarter earnings for United Parcel Service of America Inc., the shipping carrier said today. For the quarter ended March 31, UPS reported revenue of $13.43 billion, up 2.2% from $13.14 billion in Q1 2012. Domestic revenue increased $8.27 billion, up 3.4% from $8.00 billion in Q1 2012, it says.

The carrier delivered 4.4% more packages domestically and 1.8% more internationally in the first quarter than in the same quarter last year, it says.

“UPS results continue to be lifted by e-commerce, as omnichannel strategies are playing a bigger role,” the carrier’s chief financial officer Kurt Kuehn told investors in an earnings call this morning. “And increased focus by traditional retailers on using their brick-and-mortar locations as distribution sites is creating more pickups at retail locations for ultimate residential delivery.”

Roughly 25 major U.S. retailers have signed up to use the carrier’s omnichannel services, says Alan Gershenhorn, senior vice president of worldwide sales, marketing and strategy. Those services include UPS CampusShip, which allows retailers to ship products from either a warehouse or store depending on which is closest to a customer; UPS Trade Direct, which consolidates international freight, provides customs clearance and includes delivery to multiple addresses within a destination country; and an array of smaller services, such as helping e-commerce sites offer multiple shipping options and delivery locations, processing returns and allowing customers to track their packages, according to UPS.

“For the retailer, [omnichannel services] enables inventory optimization and less markdowns, and for the consumers it enables faster click-to-deliver times and greater access to retailer inventory,” Gershenhorn said in the earnings call.

Additionally, UPS processed 10% more retail returns—that is, delivering returned items from customers back to retailers—in the first quarter than in the same period last year, he says. “Easy returns are obviously an important part of driving consumers to shop online at a retail web site, and we’ve got a very robust portfolio that provides maximum efficiency, visibility and control for the retailer,” he says. Most consumers drop packages for return in UPS drop boxes or at UPS stores, he says.

When asked whether the carrier was also building out same-day delivery services, given the recent tests by U.S. e-retailers of such services, UPS chairman and CEO Scott Davis said the company is experimenting with those capabilities, but he isn’t sure they are yet economically feasible.

For the first quarter 2013 in the United States UPS reports:

Operating profit from U.S. domestic packages was up 9.0% to $1.085 billion from $995 million in Q1 2012.

U.S. domestic package revenue from Next Day Air deliveries was up 0.6%, to $1.566 billion from $1.557 billion in Q1 2012. UPS delivered 1.8% more Next Day Air packages (1.235 billion) in the first quarter than in the same period last year (1.213 billion), with average revenue per piece of $20.13.

U.S. Deferred package revenue was down 1.0% to $812 million from $820 million in Q1 2012. UPS delivered 3.7% more Deferred packages (1.021 billion) in the first quarter than in the same period last year (985 million), with average revenue per piece of $12.62. Deferred packages are air shipments longer than next-day deliveries.

U.S. Ground package revenue was up 4.7% to $5.893 billion from $5.627 billion in Q1 2012. UPS delivered 4.8% more Ground packages (11.573 billion) in the first quarter than in the same period last year (11.042 billion), with average revenue per piece of $8.08.